The IRS cautioned taxpayers about participating in certain trust arrangements being sold to professional corporations and other small businesses as welfare benefit funds and identified some of the arrangements as listed transactions.
In Notice 2007-83, the IRS identified certain trust arrangements involving cash value life insurance policies, and substantially similar arrangements, as listed transactions. If a transaction is designated as a listed transaction, affected persons have disclosure obligations and may be subject to applicable penalties. Taxpayers who otherwise would be required to file a disclosure statement prior to Jan. 15, 2008, as a result of Notice 2007-83 have until Jan. 15, 2008, to make the disclosure.
In Notice 2007-84, the IRS cautioned taxpayers that the tax treatment of trusts that, in form, provide post-retirement medical and life insurance benefits to owners and other key employees may vary from the treatment claimed. The IRS may issue further guidance to address these arrangements, and taxpayers should not assume that the guidance will be applied prospectively only.
Today, the IRS also issued related Revenue Ruling 2007-65 to address situations where an arrangement is considered a welfare benefit fund but the employer’s deduction for its contributions to the fund is denied in whole or part for premiums paid by the trust on cash value life insurance policies.
Posted by Lewis J. Saret, General Editor, Wealth Strategies Journal.
Excellent summary. VEBA's, 419's, Welware Benefit Plans, etc., have been on the proverbial "radar screen" of the Service for quite some time. Many professionals have felt they would be classified as listed transactions -- not all of course, but some.
However, the problems inherent in these plans should not be misconstrued with blame falling upon the life insurance. This is not the fault of the life insurance. Even in Rev. Rul. 2007-65 -- where the deduction is denied, this too is not because of the life insurance so to speak.
These issues more speak to the plans themselves. Like with many, the IRS must go beyond the most abusive.
Thank you again.
Eric L. Abramson